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Cypress Reports Third-Quarter 2010 Results

SAN JOSE, Calif., Oct 21, 2010 (BUSINESS WIRE) -- Cypress Semiconductor Corp. (Nasdaq:CY) today announced that revenue for
the 2010 third quarter was $231.9 million, up 4.0% from $223.0 million
for the prior quarter, and up 29.8% from $178.7 million for the year-ago
period.

Cypress recorded GAAP net income of $34.4 million in the 2010 third
quarter, or diluted earnings per share of $0.18. This compares with last
quarter's diluted earnings per share of $0.10 and a diluted net loss per
share in the year-ago third quarter of $0.13.

Non-GAAP1 net income for the 2010 third quarter--excluding
stock-based compensation, acquisition-related charges, restructuring and
other special charges and credits--totaled $53.4 million, or diluted
earnings per share of $0.28, which compares to non-GAAP1
diluted earnings per share of $0.24 for the prior quarter and diluted
earnings per share of $0.10 for the year-ago third quarter.

"Cypress achieved its sixth quarterly sequential revenue increase,
though revenue was slightly below our original guidance," said Cypress's
President and CEO, T.J. Rodgers. "Strong sales, combined with our
ongoing cost-reduction programs, led to record gross margin, very strong
earnings and more than $100 million in cash flow generation.

"Our business was impacted by manufacturing limitations in our SRAM
business, and slowing order rates in PC end markets and our distribution
channel. Nonetheless, revenue was up 4% sequentially led by a 21% gain
in our CCD division, which achieved record revenues for both our PSoC
and TrueTouch product families.

Rodgers continued, "We have seen a backlog decrease as lead times in the
industry begin to shrink to normal six-week levels from 12-plus weeks.
Our book-to-bill at the end of Q3 decreased to 0.86, in line with normal
seasonality and shrinking leadtimes, with MID down the most, and PSoC
well above parity.

"Our PSoC and TrueTouch families continue to deliver strong new design
wins and customer production ramps; we expect these businesses to
outperform seasonal trends and again set record revenues in Q4. Overall,
we estimate our total revenue to decrease sequentially in Q4, mostly due
to the softer market for SRAM and legacy products."

BUSINESS REVIEW

+ On a GAAP basis, third-quarter consolidated gross margin was 58.1%, up
2.1 percentage points from the previous quarter.

+ Non-GAAP1 consolidated gross margin for the third quarter
was 60.2%, up 0.9 percentage points from the previous quarter and
setting a new record high. The primary difference between GAAP and
non-GAAP gross margins is that stock compensation estimates are counted
both in gross margin and as valued inventory in the GAAP system.

+ Net inventory at the end of the third-quarter increased to 83 days, up
10.1% quarter-on-quarter, and 1.7% year-on-year. The increase was all in
CCD to support expected PSoC and TrueTouch revenue ramps.

+ Cash and investments for the third quarter increased $115.4 million to
$424.1 million, or $2.60 per outstanding share.

Additional third-quarter data and comparisons relevant to Cypress's
business units are presented below:

BUSINESS UNIT SUMMARY FINANCIALS (UNAUDITED)

THREE MONTHS ENDED

October 3, 2010

CCD2

DCD2

MID2

CoreSemi4

EmergingTech.3

Consolidated

REVENUE ($M)

91.9

28.9

105.0

225.8

6.1

231.9

Percentage of total revenues

39.6%

12.5%

45.3%

97.4%

2.6%

100.0%

GROSS MARGIN (%)

On a GAAP basis

59.1%

71.6%

55.1%

58.8%

30.3%

58.1%

On a non-GAAP1 basis

61.2%

73.7%

57.3%

61.0%

32.4%

60.2%

THREE MONTHS ENDED

July 4, 2010

CCD2

DCD2

MID2

CoreSemi4

EmergingTech.3

Consolidated

REVENUE ($M)

76.3

29.3

112.2

217.8

5.2

223.0

Percentage of total revenues

34.2%

13.1%

50.4%

97.7%

2.3%

100.0%

GROSS MARGIN (%)

On a GAAP basis

56.8%

67.4%

54.2%

56.9%

20.1%

56.0%

On a non-GAAP1 basis

60.0%

70.6%

57.5%

60.1%

23.3%

59.3%

1. Refer to "Reconciliation of GAAP Financial Measures to Non-GAAP
Financial Measures" and "Notes to Non-GAAP Financial Measures"
following this press release for a detailed discussion of
management's use of non-GAAP financial measures, as well as
reconciliations of all non-GAAP financial measures presented in
this press release to the most directly comparable GAAP financial
measures.

+ Cypress launched new versions of its TrueTouch touchscreen controllers
and CapSense(R) capacitive touch-sensing devices in
industry-leading, wafer-level chip-scale packages. The devices, which
cover an area the size of a grain of rice, operate at very low power,
making them ideal for a new wave of even smaller consumer electronics
products. Cypress is a world-leader in capacitive touch sensing, having
replaced more than 3.5 billion mechanical buttons.

+ Fujitsu has selected Cypress's TrueTouch technology to implement the
touchscreen on its new NTT Docomo Prime series F-04B phone--the world's
first mobile phone with a detachable keyboard that allows users to send
emails or watch TV broadcasts while talking on the baseband.

+ Cypress announced new features in its PSoC(R) Creator(TM)
integrated design environment, the software used with its PSoC 3 and
PSoC 5 programmable system-on-chip families. The new features include
integrated LCD graphics control, improved support for CapSense devices,
and enhanced low-power design.

+ Cypress's PSoC 3 and PSoC 5 programmable system-on-chip platforms have
been named the "Best New Idea" for 2010 by Electronic Engineering &
Product World (EEPW), one of China's leading electronics magazines. PSoC
3 and PSoC 5 seamlessly integrate programmable analog and digital
components with a microcontroller on a single chip, saving power, board
space and design time.

+ Cypress announced that its PSoC 3 device has been designed into
Avnet's low-power Xilinx Spartan(R)-6 LX16 FPGA Evaluation
Board. To complement the FPGA, the PSoC 3 delivers power management,
CapSense touch-sensing capabilities, USB/UART/SPI connectivity and FPGA
configurability.

+ The University of New Hampshire College of Engineering and Physical
Sciences is offering two new graduate-level courses featuring PSoC. More
than 500 colleges, universities and high schools worldwide are now using
PSoC in various aspects of their coursework.

+ Cypress's programmable Powerline Communication (PLC) solution was
named a 2010 Editor's Choice award recipient by Industrial Embedded
Systems Magazine. The new PLC solution enables data communication over
high- and low-voltage power lines, and is ideal for lighting and
industrial control, solar, smart energy management and home automation
applications.

+ ZTE Corp., a leading global provider of telecom and networking
equipment has selected Cypress's 72-Mbit QDR(TM) II+ SRAM devices for its
new ZXCME 9500 series Ethernet switches. Cypress SRAMs deliver the
market's fastest available clock speed of up to 550 MHz, and are
manufactured using an advanced 65-nm process.

+ AgigA Tech, a Cypress subsidiary, unveiled a unique family of
battery-free power modules that guard against the loss of data in
storage and server applications in the event of a power outage. The new
PowerGEM(TM) module, when combined with AgigA Tech's AGIGARAM(TM) memory
module, provides a complete, secure and reliable nonvolatile memory
subsystem for mission-critical applications.

+ Cypress and SunPower Corp., Cypress's former solar power subsidiary,
dedicated a 330 kW solar-electric system at the Second Harvest Food Bank
in San Jose, Calif. The solar installation was made possible with a
joint $1.1 million donation by the two companies. The system will cut
the food bank's electric bill in half, enabling it to serve six million
free, additional meals to the local community over the life of the
system.

+ Cypress will host its 2010 Analyst Meeting on Wednesday, November 10
at 1:30 p.m. at Cypress's headquarters in San Jose, Calif.

+ Cypress's board of directors has authorized a $600 million repurchase
of Cypress's common stock. The timing and actual amount to be spent will
depend on a variety of factors including the market price of the
company's common stock, regulatory and contractual requirements and
other market factors.

ABOUT CYPRESS

Cypress delivers high-performance, mixed-signal, programmable solutions
that provide customers with rapid time-to-market and exceptional system
value. Cypress offerings include the flagship PSoC(R)
programmable system-on-chip families and derivatives such as PowerPSoC(R)
solutions for high-voltage and LED lighting applications, CapSense(R)
touch sensing and TrueTouch(TM) solutions for touchscreens. Cypress is the
world leader in USB controllers, including the high-performance West
Bridge(R) solution that enhances connectivity and performance
in multimedia handsets. Cypress is also a leader in high-performance
memories and programmable timing devices. Cypress serves numerous
markets including consumer, mobile handsets, computation, data
communications, automotive, industrial and military. Cypress trades on
the Nasdaq Global Select Market under the ticker symbol CY. Visit
Cypress online at www.cypress.com.

FORWARD-LOOKING STATEMENTS

Statements herein that are not historical facts and that refer to
Cypress or its subsidiaries' plans and expectations for the remainder of
fiscal year 2010 and the future are forward-looking statements made
pursuant to the Private Securities Litigation Reform Act of 1995. We may
use words such as "believe," "expect," "future," "plan," "intend" and
similar expressions to identify such forward-looking statements that
include, but are not limited to, statements related to the semiconductor
market, the strength and growth of our proprietary and programmable
products, includingTrueTouch and PSoC families, our expectations
regarding our Q410 revenue and earnings, our expectations regarding our
SRAM market share, our expected customer production ramps, our ability
to outperform seasonal trends, the demand and growth in the markets we
serve, our expectations regarding product and design wins, our
expectations for sales and profit throughout 2010, and our expected
revenue from our Emerging Technology Division. Such statements reflect
our current expectations, which are based on information and data
available to our management as of the date of this release. Our actual
results may differ materially due a variety of uncertainties and risk
factors, including but not limited to the state of and future of the
global economy, business conditions and growth trends in the
semiconductor market, our ability to enter into new markets with our
portfolio of products, whether our products perform as expected, whether
the demand for our proprietary and programmable products, including
especially our TrueTouch and PSoC products, is fully realized, whether
our product and design wins result in increased sales, customer
acceptance of Cypress and its subsidiaries' products, seasonality in the
markets we serve, our ability to achieve lower operating expenses and
maintain a solid balance sheet, the actions of our competitors, the
behavior of our supply chain, our ability to manage our business to have
strong earnings and cash flow leverage, factory utilization, the
strength or softness of the markets we serve and whether those markets
achieve expected growth, our ability to maintain and improve our gross
margins and realize our bookings, the financial performance of our
subsidiaries and Emerging Technology Division, our ability to outgrow
the market in revenue once the economy recovers and other risks
described in our filings with the Securities and Exchange Commission. We
assume no responsibility to update any such forward-looking statements.

Cypress, the Cypress logo, PSoC, CapSense, PowerPSoC, West Bridge and
QDR are registered trademarks of Cypress Semiconductor Corp.
Programmable System-on-Chip, TrueTouch, CapSense Express, SmartSense,
and PSoC Creator are trademarks of Cypress Semiconductor Corp. PowerGEM
is a trademark of AgigA Tech Corp. Spartan is registered trademark of
Xilinx Inc. All other trademarks or registered trademarks are the
property of their respective owners.

CYPRESS SEMICONDUCTOR CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)

October 3,2010

January 3,2010

ASSETS

Cash, cash equivalents and short-term investments (a)

$

396,368

$

299,642

Accounts receivable, net

160,299

86,959

Inventories, net (b)

88,870

91,198

Property, plant and equipment, net

263,386

272,620

Goodwill and other intangible assets, net

45,145

46,968

Other assets

117,117

115,121

Total assets

$

1,071,185

$

912,508

LIABILITIES AND EQUITY

Accounts payable

$

70,767

$

61,712

Deferred income

136,286

75,881

Income tax liabilities

56,191

46,362

Other accrued liabilities

113,461

98,169

Total liabilities

376,705

282,124

Total Cypress stockholders' equity

696,174

631,587

Noncontrolling interest

(1,694

)

(1,203

)

Total equity

694,480

630,384

Total liabilities and equity

$

1,071,185

$

912,508

(a) Cash, cash equivalents and short-term investments do not
include $28 million and $33 million of auction rate securities
which are classified as long-term investments in "Other assets" as
of October 3, 2010 and January 3, 2010, respectively.

(b) Net inventories included approximately $6 million and $12
million as of October 3, 2010 and January 3, 2010, respectively
related to the last-time-build program for Cypress's Texas
manufacturing facility, which ceased operations at the end of
fiscal 2008. In addition, inventories include $5 million and $6
million of capitalized inventories related to stock compensation
expense, as of October 3, 2010 and January 3, 2010, respectively.

CYPRESS SEMICONDUCTOR CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

ON A GAAP BASIS

(In thousands, except per-share data)

(Unaudited)

Three Months Ended

October 3,2010

July 4,2010

September 272009

Revenues

$

231,923

$

223,024

$

178,719

Cost of revenues

97,241

98,078

94,184

Gross margin (a)

134,682

124,946

84,535

Operating expenses:

Research and development (a)

45,753

43,106

43,162

Selling, general and administrative (a)

54,384

54,147

55,116

Amortization of acquisition-related intangibles

717

722

834

Restructuring charges (credits)

3,103

(173

)

7,335

Total operating expenses, net

103,957

97,802

106,447

Operating income (loss)

30,725

27,144

(21,912

)

Interest and other income (expense), net (a)

5,357

(1,165

)

2,492

Income (loss) before income taxes

36,082

25,979

(19,420

)

Income tax provision

1,709

6,337

236

Income (loss), net of taxes

34,373

19,642

(19,656

)

Noncontrolling interest, net of taxes

(145

)

(183

)

(178

)

Net income (loss)

34,228

19,459

(19,834

)

Less: net loss attributable to noncontrolling interest

145

183

178

Net income (loss) attributable to Cypress

$

34,373

$

19,642

$

(19,656

)

Net income (loss) per share attributable to Cypress:

Basic

$

0.22

$

0.12

$

(0.13

)

Diluted

$

0.18

$

0.10

$

(0.13

)

Shares used in net income (loss) per share calculation:

Basic

158,901

160,749

151,784

Diluted

186,718

190,342

151,784

(a) Includes the following credit (expense) related to Cypress's
deferred compensation plan:

(a) Please refer to the accompanying "Notes to Non-GAAP Financial
Measures" for a detailed discussion of management's use of
non-GAAP financial measures.

CYPRESS SEMICONDUCTOR CORPORATION

CONSOLIDATED DILUTED EPS CALCULATION

(In thousands, except per-share data)

(Unaudited)

Three Months Ended

October 3,2010

July 4,2010

September 27,2009

GAAP

Non-GAAP

GAAP

Non-GAAP

GAAP

Non-GAAP

Net income (loss) attributable to Cypress

$

34,373

$

53,374

$

19,642

$

48,078

$

(19,656

)

$

19,249

Weighted-average common shares outstanding (basic)

158,901

158,901

160,749

160,749

151,784

151,784

Effect of dilutive securities:

Stock options, unvested restricted stock and other

27,817

34,204

29,593

37,015

-

46,181

Weighted-average common shares outstanding for diluted computation

186,718

193,105

190,342

197,764

151,784

197,965

Net income (loss) per share attributable to Cypress - basic

$

0.22

$

0.34

$

0.12

$

0.30

$

(0.13

)

$

0.13

Net income (loss) per share attributable to Cypress - diluted

$

0.18

$

0.28

$

0.10

$

0.24

$

(0.13

)

$

0.10

October 3,2010

July 4,2010

September 27,2009

Average stock price for the three months ended

$11.19

$11.70

$10.20

Common stock outstanding at period end (in thousands)

162,954

159,873

157,921

Includes unvested restricted stock awards of approximately 1.9
million shares at October 3, 2010 and July 4, 2010 and 2.5 million
shares at September 27, 2009, respectively.

CYPRESS SEMICONDUCTOR CORPORATION

SUPPLEMENTAL FINANCIAL DATA

(In thousands)

(Unaudited)

Three Months Ended

Nine Months Ended

October 3,2010

July 4,2010

September 27,2009

October 3,2010

September 27,2009

Selected Cash Flow Data (Preliminary):

Net cash provided by operating activities

$

109,405

$

46,031

$

24,301

$

193,559

$

14,028

Net cash provided by (used in) investing activities

$

3,059

$

(13,937

)

$

(29,333

)

$

(54,635

)

$

(37,702

)

Net cash provided by (used in) financing activities

$

12,320

$

(60,339

)

$

(16,696

)

$

(68,902

)

$

10,039

Other Supplemental Data (Preliminary):

Capital expenditures

$

10,715

$

8,533

$

6,823

$

37,120

$

18,278

Depreciation

$

12,049

$

11,947

$

11,969

$

35,457

$

38,500

Notes to Non-GAAP Financial Measures

To supplement its consolidated financial results presented in accordance
with GAAP, Cypress uses non-GAAP financial measures which are adjusted
from the most directly comparable GAAP financial measures to exclude
certain items, as described in details below. Management believes that
these non-GAAP financial measures reflect an additional and useful way
of viewing aspects of Cypress's operations that, when viewed in
conjunction with Cypress's GAAP results, provide a more comprehensive
understanding of the various factors and trends affecting Cypress's
business and operations. Non-GAAP financial measures used by Cypress
include:

Gross margin;

Research and development expenses;

Selling, general and administrative expenses;

Operating income (loss);

Net income (loss); and

Diluted net income (loss) per share.

Cypress uses each of these non-GAAP financial measures for internal
managerial purposes, when providing its financial results and business
outlook to the public, and to facilitate period-to-period comparisons.
Management believes that these non-GAAP measures provide meaningful
supplemental information regarding Cypress's operational and financial
performance of current and historical results. Management uses these
non-GAAP measures for strategic and business decision making, internal
budgeting, forecasting and resource allocation processes. In addition,
these non-GAAP financial measures facilitate management's internal
comparisons to Cypress's historical operating results and comparisons to
competitors' operating results.

Cypress believes that providing these non-GAAP financial measures, in
addition to the GAAP financial results, are useful to investors because
they allow investors to see Cypress's results "through the eyes" of
management as these non-GAAP financial measures reflect Cypress's
internal measurement processes. Management believes that these non-GAAP
financial measures enable investors to better assess changes in each key
element of Cypress's operating results across different reporting
periods on a consistent basis. Thus, management believes that each of
these non-GAAP financial measures provides investors with another method
for assessing Cypress's operating results in a manner that is focused on
the performance of its ongoing operations.

There are limitations in using non-GAAP financial measures because they
are not prepared in accordance with GAAP and may be different from
non-GAAP financial measures used by other companies. In addition,
non-GAAP financial measures may be limited in value because they exclude
certain items that may have a material impact upon Cypress's reported
financial results. Management compensates for these limitations by
providing investors with reconciliations of the non-GAAP financial
measures to the most directly comparable GAAP financial measures. The
presentation of non-GAAP financial information is not meant to be
considered in isolation or as a substitute for the most directly
comparable GAAP financial measures. The non-GAAP financial measures
supplement, and should be viewed in conjunction with, GAAP financial
measures. Investors should review the reconciliations of the non-GAAP
financial measures to their most directly comparable GAAP financial
measures as provided in the accompanying press release.

As presented in the "Reconciliation of GAAP Financial Measures to
Non-GAAP Financial Measures" tables in the accompanying press release,
each of the non-GAAP financial measures excludes one or more of the
following items:

Stock-based compensation expense.Stock-based compensation
expense relates primarily to the equity awards such as stock options
and restricted stock. Stock-based compensation is a non-cash expense
that varies in amount from period to period and is dependent on market
forces that are often beyond Cypress's control. As a result,
management excludes this item from Cypress's internal operating
forecasts and models. Management believes that non-GAAP measures
adjusted for stock-based compensation provide investors with a basis
to measure Cypress's core performance against the performance of other
companies without the variability created by stock-based compensation
as a result of the variety of equity awards used by companies and the
varying methodologies and subjective assumptions used in determining
such non-cash expense.

Changes in value of Cypress's key employee deferred compensation plan.Cypress
sponsors a voluntary deferred compensation plan which provides certain
key employees with the option to defer the receipt of compensation in
order to accumulate funds for retirement. The amounts are held in a
trust and Cypress does not make contributions to the deferred
compensation plan or guarantee returns on the investment. Changes in
the value of the investment in Cypress's common stock under the plan
are excluded from the non-GAAP measures. Management believes that such
non-cash item is not related to the ongoing core business and
operating performance of Cypress, as the investment contributions are
made by the employees themselves.

Restructuring charges.Restructuring charges primarily relate to
activities engaged by management to make changes related to its
infrastructure in an effort to reduce costs. Restructuring charges are
excluded from non-GAAP financial measures because they are not
considered core operating activities and such costs have not
historically occurred in each year. Although Cypress has engaged in
various restructuring activities in the past, each has been a discrete
event based on a unique set of business objectives. As such,
management believes that it is appropriate to exclude restructuring
charges from Cypress's non-GAAP financial measures, as it enhances the
ability of investors to compare Cypress's period-over-period operating
results from continuing operations.

Acquisition-related expense.Acquisition-related expense
primarily includes: (1) impairment of goodwill, (2) amortization of
intangibles, which include acquired intangibles such as purchased
technology, patents and trademarks, (3) a settlement loss resulted
from the cancellation of a licensing agreement with Simtek following
the acquisition, and (4) earn-out compensation expense, which include
compensation resulting from the achievement of milestones established
in accordance with the terms of the acquisitions. In most cases, these
acquisition-related charges are not factored into management's
evaluation of potential acquisitions or Cypress's performance after
completion of acquisitions, because they are not related to Cypress's
core operating performance. Adjustments of these items provide
investors with a basis to compare Cypress against the performance of
other companies without the variability caused by purchase accounting.

Impairment of assets.In the second quarter of fiscal 2010,
Cypress wrote off the book value of certain assets as management
determined these assets have no future benefit to Cypress. Cypress
excluded this item because the expense is not reflective of its
ongoing operating results. Excluding this data allows investors to
better compare Cypress's period-over-period performance without such
expense.

Related tax effect.Cypress adjusts for the income tax effect
that resulted from the non-GAAP adjustments as described above.